Canadian Currency Declines as Gain in Employment Trails Forecast

Canada’s dollar dropped the most in
three weeks against its U.S. counterpart after employers added
fewer jobs than forecast in April, fueling concern the nation’s
economic recovery is slowing.

The currency fell for a second day as the U.S. dollar
climbed versus all of its 16 most-traded counterparts amid bets
the Federal Reserve may slow its monetary stimulus on signs the
economy of Canada’s biggest trading partner is improving. The
Canadian dollar rose versus most other major peers. The yen
tumbled past 101 to the greenback for the first time since 2009.

“Right now we’re in the broader U.S. dollar movement, so
if we really are shifting to a stronger U.S. dollar, I think the
Canadian dollar will underperform a bit,” said Camilla Sutton,
head of currency strategy at Bank of Nova Scotia, by phone from
Toronto. “When the U.S. dollar is so strong, it’s going to be
hard for the Canadian dollar to break through parity.”

The loonie, as the Canadian dollar is nicknamed for the
image of the aquatic bird on the C$1 coin, depreciated 0.3
percent to C$1.0100 per U.S. dollar at 5 p.m. in Toronto, for a
weekly loss of 0.2 percent. It slid as much as 0.8 percent, the
biggest intraday decline since April 17, to C$1.0152 after
approaching parity earlier in the week. One Canadian dollar buys
99.01 U.S. cents.

The currency weakened past its 100-day moving average for
the first time in four days. Moving averages, which indicate
momentum, are seen by some traders as potential turning points.

Sutton of Bank of Nova Scotia said she expects the loonie
to trade in a range of C$1.020 to C$1.025 over the next week.

Bets Trimmed

Futures traders decreased their bets that the Canadian
dollar will decline against the greenback, figures from the
Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and
other large speculators on a decline in the dollar compared with
those on a gain -- so-called net shorts -- was 51,916 on May 7,
compared with net shorts of 67,848 a week earlier. The
difference shrank to 75,913 on April 19, the lowest since 2007.

Canada’s government bonds slumped, pushing the yield on
benchmark 10-year debt up as much as 11 basis points, or 0.11
percentage point, to 1.92 percent, the highest level since March
15. The yield traded at 1.88 percent as the price of the 1.5
percent security maturing in June 2023 slid 78 cents to C$96.50.

The Bank of Canada will auction C$2.7 billion of three-year
bonds on May 15. The 1 percent securities mature in August 2016.

Futures on crude oil, Canada’s biggest export, dropped as
much as 3.1 percent to $93.37 a barrel in New York before
trading at $95.95, down 0.5 percent. Standard & Poor’s GSCI
Index of commodities sank 0.9 percent. Raw materials including
oil account for about half of the nation’s export revenue.

Slow Pace

Canada is expanding at the slowest pace since 2009 as the
prices of exports such as oil fall and consumers cut spending.
The Bank of Canada last month cut its growth outlook for this
year to 1.5 percent from 2 percent because of lower business
investment and government spending.

The loonie was little changed against the greenback before
the employment report was issued.

Jobs Expectations

“Expectations had built up for a stronger dollar in the
overnight session; implicit there was the expectation of a
strong jobs number,” David Tulk, chief macro strategist at
Toronto-Dominion Bank’s TD Securities unit in Toronto, said by
phone. “When it was on consensus, the market started responding
more to a stronger U.S. dollar.”

TD on April 19 lowered its year-end forecast for the loonie
to C$1.09 per U.S. dollar.

The U.S. currency rose yesterday after a Labor Department
report showed the number of Americans filing claims for jobless
benefits unexpectedly dropped last week to a five-year low. The
U.S. jobless rate fell to 7.5 percent in April, from 7.6 percent
the month before, as payrolls expanded by 165,000 jobs, more
than forecast, a government report showed May 3.

The U.S. data spurred bets the Fed will slow earlier than
previously anticipated its $85 billion a month of bond purchases
under the quantitative-easing stimulus strategy.

Other Banks

Other central banks, including those of Japan, Australia and
the euro region, are pumping cash into their economies or
cutting interest rates, prompting investors to seek higher-yielding assets.

The yen slid versus major peers as a government report
showed Japanese investors increased holdings of overseas bonds,
fueling speculation the nation’s measures to stem deflation and
spur economic growth are driving local investors to seek higher
returns overseas.

The loonie has gained 1.7 percent this year against nine
other developed-nation currencies monitored by Bloomberg
Correlation-Weighted Indexes. The U.S. dollar has climbed 3.7
percent, while the yen has fallen 13 percent.